Good day. Just as it seemed that supply chains were getting a
little relief, along comes the Omicron variant to worry Federal
Reserve officials. But while they are concerned the variant might
lead to a new round of supply-chain disruptions that push prices
even higher, something else could be in store for the U.S. economy.
Further afield, the Reserve Bank of Australia left its official
cash rate steady at 0.10% at its monthly policy meeting earlier
today, indicating it will be some time before the required
conditions for an increase will be in place and addressing concerns
about the Omicron variant of the Covid-19 virus.
Now on to today's news and analysis.
Top News
Omicron Will Cause Problems, But Inflation May Not Be One
Federal Reserve policy makers worry that the Omicron variant
could exacerbate companies' supply-chain and hiring problems,
pushing up prices as a result. The actual outcome could be
different, Justin Lahart writes. Omicron could make people less
willing to spend than they were during earlier Covid-19 waves.
Demand for big-ticket items, in particular, such as cars,
appliances and furniture -- some of the biggest contributors to the
rise in inflation -- could soften.
RBA Says Omicron Won't Derail Economic Recovery
In reassessing its quantitative easing program, the Reserve Bank
of Australia will consider the actions of other central banks; how
the Australian bond market is functioning; and progress toward full
employment and inflation consistent with its target, writes James
Glynn.
U.S. Economy
Junk-Bond Investors Fear Bumpy 2022 After November Slump
Want to know how a jump in interest rates next year could hit
markets in unexpected ways? Look at the recent selloff in junk
bonds, writes The Wall Street Journal's Matt Wirz. The downturn
began in early November when new inflation data stoked fears of
interest-rate increases, then accelerated when the Omicron
coronavirus variant shook stock markets. While prices of the
below-investment-grade corporate bonds stabilized last week,
investors continued to pull cash from funds that buy the debt.
Key Developments Around the World
China Increasingly Obscures True State of Its Economy to
Outsiders
China's Communist Party has long maintained tight control over
information, and the effort has intensified under leader Xi
Jinping. The country has become increasingly opaque over the past
year, even as its presence on the world stage grows.
Tax Revenues Held Up Even as Economies Crashed During
Pandemic
Government tax revenues rose in rich countries as a share of
economic output in 2020, as job losses were concentrated in
low-wage employment and high-income jobs were hit less hard,
underlining the novel nature of the contraction with the first
Covid-19 surge.
Europe Tops China in Spawning $1 Billion Tech Startups
Europe has overtaken China in creating billion-dollar tech
startups, according to a new analysis that points to Europe's
rising status in the field and the effect of Beijing's crackdown on
capitalist entrepreneurialism.
Financial Regulation Roundup
Stacey Cunningham, First Female NYSE President, to Step Down
New York Stock Exchange President Stacey Cunningham will leave
her job at the end of the year, the NYSE's parent company said
Monday. She is being succeeded by Lynn Martin, an executive at NYSE
parent Intercontinental Exchange Inc., known as ICE.
Biden Administration Unveils Plans to Fight Corruption
The Biden administration on Monday unveiled steps to combat
corruption globally, including assistance to foreign governments to
increase financial transparency and new regulations on U.S.
real-estate purchases to prevent money laundering.
Forward Guidance
Tuesday (all times ET)
8:30 a.m.: U.S. Commerce Department releases October
international trade data
3 p.m.: Federal Reserve releases October U.S. consumer-credit
data
Wednesday
Time N/A: National Bank of Poland releases policy statement;
Central Bank of Brazil releases policy statement
3:15 a.m.: European Central Bank's Lagarde gives prerecorded
address at European Systemic Risk Board conference
3:30 a.m.: European Central Bank's de Guindos gives speech at
Banking Forum and Fintech Expo
6:30 a.m.: European Central Bank's de Guindos speaks on panel at
European Systemic Risk Board conference
8:10 a.m.: European Central Bank's Enria, Schnabel speak on
panel at European Systemic Risk Board conference
10 a.m.: U.S. Labor Department releases October Job Openings and
Labor Turnover Survey
Research
Reverse Repo Use Still Hot Despite Money Market Rate Uptick
A rise in key money market rates hasn't been enough to pry cash
out of the Federal Reserve's reverse repo facility, says Scott
Skyrm, who leads short-term market trading firm Curvature
Securities. Mr. Skyrm notes that money market rates now match or
exceed the 0.05% money managers and banks get paid to park cash at
the Fed, but that isn't drawing money out of the reverse repo
facility. It pulled in $1.5 trillion on Monday, about as much as it
has attracted in recent days. "Maybe that means [general
collateral] rates need to get to .08% or .09% before significant
[reverse repo] cash comes back into the market," he writes in a
note to clients, adding that "as more [reverse repo] cash comes
into the market, it puts downward pressure on rates. That means,
when rates start moving higher, [reverse repo] cash will act like
an anchor, keeping repo rates lower for longer."
-- Michael S. Derby
Updated Paper on Treasury Payment Disruptions Released
The Treasury Market Practices Group, which is comprised of
private market participants and sponsored by the Federal Reserve
Bank of New York, on Monday released a revised version of a 2013
paper that games out various contingencies in case of a disruption
in U.S. Treasury debt payments. The paper arrives with the
government at risk of not being able to pay for past borrowing tied
to the debt ceiling to accommodate already authorized spending
plans. Congress must raise the debt limit by around midmonth. The
paper doesn't allude directly to the debt ceiling issue, but it
notes that its authors "hope that this document will provide a
sharper focus on some of the relevant issues and, at a minimum,
serve as a useful starting point for any future discussions."
-- Michael S. Derby
Commentary
Evergrande's Haircut and Some Help for Chinese Banks
A timely cut to Chinese banks' reserve-requirement ratios,
announced Monday evening, may be partly aimed at soothing markets
ahead of any further Evergrande-related turbulence, Jacky Wong
writes.
Basis Points
The Conference Board Employment Trends Index rose to 114.49 in
November from a revised 113.03 in October, The Conference Board
said, suggesting the U.S. labor market's recovery gathered pace
over the month. (Dow Jones Newswires)
Brazilian economists' expectations for inflation this year and
next year grew slightly worse over the past week, according to the
weekly survey by the country's central bank. The median forecast by
135 economists surveyed was for 12-month inflation of 10.18% this
month, up from 10.15% in the previous survey. For 2022, the median
forecast rose from 5.0% to 5.02%. (DJN)
Brazilian auto sales and output slumped in November from a year
earlier the country's National Association of Automotive Vehicle
Manufacturers said. Motor vehicle sales fell 23.1% to 172,964 from
November 2020, while vehicle output dropped 13.5% from a year
earlier to 206,042, the group said. Sales and output both increased
from October, by 6.5% and 15.1% respectively. (DJN)
Mexican production of cars and light trucks fell 20% in November
from a year earlier to 249,000 units, and decreased 0.7% in the
January-November period to just under 2.8 million, statistics
institute Inegi said. (DJN)
China's exports beat market expectations in November, though the
growth rate decelerated from October due to a higher base compared
with the same period a year earlier. Outbound shipments rose 22%
from a year earlier in November, slowing from a 27% increase in
October, the General Administration of Customs said Tuesday. The
result surpassed the 16.1% growth rate expected by economists
polled by The Wall Street Journal. (DJN)
China's foreign-exchange reserves rose by $4.77 billion to
$3.222 trillion in November thanks to the dollar's appreciation,
the People's Bank of China said Tuesday. The result was the
opposite of a consensus $10 billion decrease expected by economists
polled by The Wall Street Journal, marking a second consecutive
monthly rise for reserves. (DJN)
The eurozone economy expanded at a strong pace in the third
quarter, almost fully recovering the gap from the Covid-19-induced
recession, but growth is expected to slow sharply in the months
ahead as the boost from the reopening fades. The eurozone's gross
domestic product expanded by 2.2% from July to September compared
with the prior three-month period, according to the final GDP
release of the European Union's statistics agency, confirming the
second estimate released on Nov. 16. (DJN)
German industrial production rose in October, although
supply-chain bottlenecks continue. Total industrial
output--comprising production in manufacturing, energy and
construction--increased 2.8% on month in October in
calendar-adjusted terms, statistics office Destatis said Tuesday.
Economists polled by The Wall Street Journal had forecast a 1.0%
increase. (DJN)
(END) Dow Jones Newswires
December 07, 2021 09:10 ET (14:10 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.